The place to be for a crisis manager of Mark Carney’s ability is London, now at risk of losing its status as a financial capital rivaled only by New York.

Carney gave an emphatic “no” when asked if he’d be willing to take the top job with the Bank of England but some believe London is the place to be for a crisis manager of Carney’s demonstrated ability.
THE CANADIAN PRESS

It’s entirely possible that we’ll lose Mark Carney, one of the world’s most competent central bankers, to the British recruiters seeking a replacement for Mervyn King. King is soon to retire as governor of the 318-year-old Bank of England (BofE).

Late last week, Carney, 47, gave an emphatic “no” when asked by a London interviewer if he’d be willing to succeed King. Carney heads both the Bank of Canada and the Switzerland-based Financial Stability Board (FSB). The latter is charged with rewriting the rules of global finance in order to prevent another catastrophic 2008-09 credit meltdown that triggered the Great Recession.

Still, the place to be for a crisis manager of Carney’s demonstrated ability is London, now at risk of losing its status as a financial capital rivaled only by New York. The challenge would be alluring even without the proximity of the European sovereign debt crisis.

Britain’s banking sector remains in the sick bay, not yet recovered from the same reckless lending and lax regulation that humbled U.S. high finance, requiring state bailouts that Canada alone among major economies was able to avoid.

Holding back that recovery is the most severe, widespread outbreak of scandalous behaviour in modern British banking history.

Barclays PLC, which just paid a record $450-million (U.S.) fine for rigging the benchmark London Interbank Offered Rate, or Libor, is only the first of several British banking Leviathans to be swept up in the “Lie-bor” scandal.

Separately, the giant Standard Chartered PLC is expected to be hit with about $1 billion in fines and settlements over its alleged illegal hiding of transactions with clients in Iran, skirting international sanctions against that country.

And yet another giant, HSBC Holdings PLC, has been exposed laundering the funds of Mexican drug lords and other unsavoury characters spanning the Cayman Islands to Syria.

It was the London office of American International Group Inc. (AIG) that crippled AIG by insuring a stupendous quantity of toxic waste. More recently, London is home to “the Whale,” the hyper-aggressive trader responsible for J.P. Morgan Chase & Co.’s spectacular trading loss this year of $5.8 billion and counting. London is also ground zero for an alleged $2.3-billion fraud at Swiss banking giant UBS AG.

Carl Levin, the U.S. senator heading a probe into the stateside conduct of HSBC, last month described the bank’s culture as “pervasively polluted.” There’s wide agreement that London needs a culture transplant.

There are few viable British candidates to succeed King, since most are tainted by the many and varied deficiencies that have beset the City, London’s financial district. “Why not get a head [for the BoE] that’s global?” Kent Matthews, a professor at Cardiff University and a former BofE researcher, said in a recent Bloomberg News interview. “A Canadian sounds like a good choice. It may well be that to restore credibility they have to look outside.”

No mere outsider, Carney is a veteran of the “real world” of investment banking during a 13-year career with Goldman Sachs Group Inc., including a stint in London. Back home, Carney spearheaded a painless 2007 resolution of a mounting crisis in asset-backed commercial paper. Carney backstopped Canada’s Big Five banks against potential collateral damage from the worldwide credit meltdown. His Bank of Canada was then recruited to join the U.S. Federal Reserve Board, the BofE and the Bank of Switzerland in rapidly injecting waves liquidity into a global system that would otherwise have totally collapsed, bringing on a second Great Depression.

Carney has already done much of the heavy lifting in his FSB mandate, which carries a brief, two-year term. And British bettors making book on a Carney appointment have noted Canada’s expected GDP growth of about 2.0 per cent this year, against a 0.2 per cent economic decline in Britain.

Two counts against Carney are his presumed lack of familiarity with the complexity of the more rigourous powers lately conferred on the BofE. And there’s the daunting size of London, which handles some $500 trillion (U.S.) in foreign exchange transactions each year. Its banks boast a market value of $271 billion (U.S.).

But as a battle-tested central banker, and chief architect of new global banking practices that obviously encompass London, Carney would make a quick study. And he hails from an outsized Canadian jurisdiction whose banks are worth a remarkable $194 billion to Hong Kong’s $71 billion.

Could Carney turn down the once-in-a-lifetime challenge of the BofE post if it was formally offered? I’m not sure he’d have a choice but to follow the example of Canadian healthcare pioneer Sir William Osler in co-founding Johns-Hopkins and revamping the medical school at Oxford.

The Bank of Canada and the larger Canadian financial community offers an abundance of talented replacements for Carney. To be on the safe side, Stephen Harper should have some one of these in mind.

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